JGBs end on steady note; benchmark yields at 3-month high

Fri Dec 28, 2012 1:52am EST

Related Topics

* Benchmark yields end 2012 well above 9 1/2-year low hit
earlier this month
    * U.S. "fiscal cliff" scenario could mean stronger yen,
lower JGB yields-analyst
    * 20-yr yield edges down after touching 8-month high

    By Lisa Twaronite
    TOKYO, Dec 28 (Reuters) - Japanese government bonds were
steady on the last trading day of 2012 with benchmark yields at
the three-month high hit in the previous session, on
expectations that the new year will bring more fiscal and
monetary stimulus measures.     
    Markets here will be closed for the long New Year's holiday
in Japan, and will reopen on Jan. 4.
    "A lot of people are off already, having closed out their
positions for the year. When markets open a week from today, the
big question will be what happened with the U.S. fiscal cliff,
and how U.S. debt prices reacted to the developments," said a
fixed-income fund manager at a European asset management firm in
Tokyo.
    Republican leaders in the House of Representatives told
their members to be back in Washington from the Christmas
holiday break on Sunday in case they need to vote on budget
measures, leaving the door open to a last-minute solution to the
U.S. budget impasse.    
    "If a fiscal cliff does become a reality, we can expect a
downturn in the dollar/yen and Japanese stocks. The unwinding of
speculative dollar/yen positions could lead to a significant
upswing in the Japanese currency," Noriatsu Tanji, a fixed
income strategist at Barclays in Tokyo, said in a note to
clients.
    "As 0.8 percent appears to be the line for buying on
weakness in 10-year JGBs, we see a somewhat greater risk of a
yield decline through early next year," Tanji said.
    The 10-year JGB yield was flat at 0.800
percent, its highest level since Sept. 21. Earlier Friday, it
slipped to 0.795 percent. 
    Benchmark yields dropped as low as 0.685 percent on Dec. 6,
their lowest since June 2003. They finished 2011 at 0.980
percent.
    
    The benchmark 10-year JGB futures contract ended up
0.15 point at 143.65 on Friday, though still well shy of Dec.
7's intraday high of 145.26, which was the highest level ever
for a 10-year JGB futures contract. Futures finished 2011 at
142.41.       
    Yields on 20-year bonds edged down half a
basis point to 1.755 percent, after earlier rising as high as
0.1770 percent, their highest since early April. Yields on
30-year bonds also shed half a basis point to
1.975 percent.
    The market shrugged off downbeat economic data released on
Friday morning, even though it bolstered the case that more
monetary stimulus steps probably lie ahead from the Bank of
Japan. 
    Industrial output fell 1.7 percent in November, more than
triple the median market forecast for a 0.5 percent decline.
 
    The BOJ delivered further easing steps last week in response
to intensifying pressure from new Prime Minister Shinzo Abe,
whose government was sworn in two days ago.
    In addition to monetary stimulus, the government will
compile spending requests for its own stimulus package on Jan. 7
and finalise the proposal shortly thereafter, to implement 
Abe's agenda of "big" spending to help narrow the output gap and
ease deflation. 
    Benchmark JGBs have lost 6.9 percent in 2012 in dollar-based
terms, according to Reuters data. Part of that is due to the
weakness of the Japanese yen, which is on track to lose more
than 12 percent against the dollar this year, its weakest
performance since 2005.
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